Trend Micro (4704) Initiation – Superior Cybersecurity Solutions
The war between cyber-attackers and cyber-defenders has always been unevenly matched. Whereas the former only need to hunt down one flaw to access and manipulate the system, the latter need to put in place all kinds of protection, to fence off both known and unknown cyberthreats. Defenders are not always successful. Two serious malwares – WannaCry from May 12th and Petya from June 27th, spreading worldwide – are the latest warnings about cyberattacks. The spotlight is once again falling on the cybersecurity companies.
Against this backdrop, we examine Trend Micro, a global cybersecurity company, is not only a leader in Japan but it is also a significant player in the rest of the world. We believe the company offers superior cybersecurity solutions which are improved continuously; enjoys good financial health; and is nicely positioned for the IoT era. With the company operating in a favourable market environment, we expect its revenue to expand at a CAGR of 13.9% and OP to grow at a CAGR of 17.4% in FY16-FY19, leading to an improvement in margins over the forecast period. Besides, valuations are not excessive; EV/OPe based on our FY17 OP estimates is 17x, which could, we think, come down to 12x in FY19.
Key Points
- Ongoing increases in the internet penetration rate and the number of internet-connected devices, as well as of cyberattacks, form a favourable market environment for cybersecurity companies.
- Trend Micro is an established global player with a No. 1 position in endpoint, server and cloud security, and a strengthening position in network security.
- Revenue and OP growth as well as OPM improvement is expected across all regions over the forecast period.
- Valuations are not demanding; EV/OPe based on our FY19 OP estimate is 12x.
Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods.
PSA produces both company and sector reports. The focus of PSA’s research is to identify winners and losers as new technologies impact the top and bottom lines of corporations. Critical to our research is the clear explanation of how these new technologies work and how they impact companies and industries.
The founding partners have worked closely together for twenty years and the team has more than doubled in size since 2012.
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